Interest on delayed export payments need not be excluded from Section 80HHC deduction computation

Punjab and Haryana HC ruled on Section 80HHC deduction computation. The court held that interest earned on delayed payment of sale consideration (90 days) need not be excluded from eligible profits calculation, following Atul Ltd. precedent. Regarding 100% EOU, the court determined that export turnover and total turnover from EPZ units cannot be excluded while computing Section 80HHC deduction. The court emphasized Section 80HHC as beneficial provision encouraging exports, requiring interpretation favoring assessee. Deduction computation follows prescribed formula without reference to total income, with computed amount then deducted from total income.

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Issues:
1. Exemption under Section 10B of the Act for conversion of manufacturing unit into 100% EOU.
2. Exclusion of interest received from customers for eligible profits under Section 80HHC.
3. Exclusion of export turnover of 100% EOU for deduction under Section 80HHC.

Analysis:
1. The initial question of law regarding exemption under Section 10B for the conversion of a manufacturing unit into a 100% EOU was rendered infructuous and amended questions of law were allowed. The amended questions focused on the exclusion of interest received from customers and export turnover for deduction under Section 80HHC. The appellant did not press the initial question, and the amended questions were considered for adjudication.

2. The issue of excluding 90% interest received from customers for eligible profits under Section 80HHC was extensively discussed. The Gujarat High Court's judgment in Principal Commissioner of Income Tax vs. Atul Ltd. was cited, upholding that such interest is to be included in profits for deduction under Section 80HHC. The court agreed with this view, emphasizing that interest earned on delayed payments should not be excluded for deduction purposes.

3. Regarding the exclusion of export turnover of a 100% EOU for deduction under Section 80HHC, the court referred to the judgment in M/s Mahavir Spinning Mills Ltd. vs. Commissioner of Income Tax. The court held that the export turnover of the unit should be included in the calculation of deduction under Section 80HHC, aligning with the Delhi High Court's interpretation. The court also referenced similar views from the Madras High Court and the Bombay High Court, ultimately deciding in favor of including the export turnover for deduction.

4. The court concluded that the amended questions of law were resolved in favor of the assessee based on the precedents and interpretations provided by the Gujarat High Court and other relevant judgments. The appeals were allowed, and the orders of the ITAT and CIT(A) were quashed and set aside to grant the assessee the benefit of deduction under Section 80HHC of the Act, 1961. The pending miscellaneous applications were also disposed of accordingly.

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